CNBC AI News – August 5 – Tesla (TSLA) has filed paperwork with the Securities and Exchange Commission (SEC) this Monday, revealing a massive stock option package for CEO Elon Musk valued at approximately $29 billion, according to reports. The move underscores Tesla’s commitment to retaining Musk’s leadership as the company navigates a pivotal transformation towards autonomous vehicles and robotics.
While Tesla shares edged up 2.2% on Monday, the stock remains down nearly 25% year-to-date, significantly underperforming broader market benchmarks.
The compensation package is intrinsically linked to the landmark 2018 incentive plan, initially valued at $2.6 billion, which ballooned to a staggering $56 billion at the start of 2024, fueled by Tesla’s meteoric stock surge.
However, this lucrative package hit a snag earlier this year when a Delaware court rescinded the initial agreement. The court cited “sham negotiations” orchestrated by Musk with ostensibly non-independent directors, along with flaws in the board’s approval process that unfairly prejudiced shareholders. Musk has appealed the ruling since March, arguing that the plan was instrumental in driving Tesla’s extraordinary growth.
In response, Tesla’s board established a special committee tasked with re-evaluating Musk’s compensation. Notably, Musk spearheaded the relocation of Tesla’s legal domicile from Delaware to Texas last year, citing the court decision as a contributing factor. The special committee is now focused on structuring a new arrangement for Musk under the more favorable legal environment of Texas.
The newly awarded 96 million stock options are being characterized as an “interim award” by the company. The structure is designed to prevent Musk from double-dipping: If Musk remains an executive for at least two years and the Delaware court’s decision is upheld, he can apply for the new grant. Conversely, if the 2018 plan is ultimately reinstated in full, this interim award will be cancelled. The exercise price is set at $23.34 per share (consistent with the 2018 plan) with a five-year holding period. Based on Monday’s closing price, the options are currently valued at $29.5 billion.
Data from the London Stock Exchange Group (LSEG) indicates that this grant would boost Musk’s stake in Tesla from approximately 12.7% to over 15%.
Analysts suggest that granting Musk greater control signals the board’s continued belief that he is the best leader to navigate Tesla’s future challenges. The core objective of this incentive package is to solidify Musk’s focus on steering Tesla through its significant strategic shift, moving beyond its core automotive manufacturing business into the realms of autonomous ride-hailing services and advanced robotics technologies.
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